The Double Standard of America’s China Trade Policy

Many liberal commentators in the US think that Donald Trump is right to confront China over its trade tactics, and object only to his methods. Yet Trump’s trade agenda is driven by a narrow mercantilism that privileges the interests of US corporations above those of all others.

CAMBRIDGE – A high-profile United States trade delegation appears to have returned empty-handed from its mission in China. The result is hardly a surprise, given the scale and one-sided nature of the US demands. The Americans pushed for a wholesale remaking of China’s industrial policies and intellectual property rules, while asking China’s government to refrain from any action against Trump’s proposed unilateral tariffs against Chinese exports.

This is not the first trade spat with China, and it will not be the last. The global trading order of the last generation – since the creation of the World Trade Organization in 1995 – has been predicated on the assumption that regulatory regimes around the world would converge. China, in particular, would become more “Western” in the way that it manages its economy. Instead, the continued divergence of economic systems has been a fertile source of trade friction.

There are good reasons for China – and other economies – to resist the pressure to conform to a mold imposed on them by US export lobbies. After all, China’s phenomenal globalization success is due as much to the regime’s unorthodox and creative industrial policies as it is to economic liberalization. Selective protection, credit subsidies, state-owned enterprises, domestic-content rules, and technology-transfer requirements have all played a role in making China the manufacturing powerhouse that it is. China’s current strategy, the “Made in China 2025” initiative, aims to build on these achievements to catapult the country to advanced-economy status.

Let us start with what he gets right: The United States might have stolen IP from Britain. The problem then was that there were no international intellectual property regimes. They did not exist. Everyone stole from everyone. Germany stole from Britain too. Ask Ha-Joon Chang. That is what he documented in his book, 'Kicking away the ladder'.

But, now, right or wrong, fair or unfair, we have international laws and countries voluntarily sign up to them, because they want the technology and hence, they sign up to complying with transfer restrictions to other nations.

Now that nations sign up to international agreements, they cannot go back and cite precedence from another period when no framework existed.

If they had no intention of complying and did not sign the agreements, then, it would have meant that they signed up to the philosophy of 'might is right'. Then, it becomes a law of the jungle and survival of the fittest. There is no role for op.-eds. and economists. We can watch the slugfest.

Indeed, that is the conclusion that Prof. Rodrik's arguments are leading us to. China is not claiming that it is not cheating nor is Prof. Rodrik claiming that China is not cheating. But, he is questioning the actions that the U.S. Government is taking. Where would that lead to? Only the jungle.

Prof. Rodrik has written often enough that economics rules and laws operate within the prevailing social and political contexts. Hence, to cite precedence from another era and another context must sound very unconvincing, even to him.

The context is indeed different now in another aspect too. Technology - beneficial and menacing - has advanced tremendously. There are chemical, biological and nuclear technologies that can cause tremendous damage. Hence, stealing them and propagating them to nations that do not have a record of responsible deployment (not just against the rest of the world but against their own people) is immoral and actually, they tantamount to crimes against humanity. These are not morally equivalent to and are far different from stealing technology for sewing machines during times when no intellectual property regime existed.

If one can hazard a guess as to why Prof. Rodrik wrote this piece, we get clues from his concluding lines. Prof. Rodrik writes that many liberal commentators question Trump's methods but not his goals. He wanted to differentiate himself by criticisng both.

In dong so, he falls well short of the analytical and logical rigour that one has come to expect of him.

"After all, China’s phenomenal globalization success is due as much to the regime’s unorthodox and creative industrial policies as it is to economic liberalization."

No truer sentence could be written about China's recent economic development. And no true sentence could be written about Western misconceptions about what China's entry into the WTO would mean for China's economic development.

At the early stages of this development these different perceptions scarcely mattered since China exported products of cheap labor into an apparently insatiable global economy, while privatizing most of its non-strategic economic sectors and dramatically raising living standards. Now they matter a lot, as China evolves into a more mature economy in which capital-intensive sectors gain greater importance.

China has no intention of prioritizing the profits of global free enterprise, even in the name of fairness or past agreements, over these unorthodox industrial policies that have produced the fastest rising living standards in global history.

"Any sensible international trade regime must start from the recognition that it is neither feasible nor desirable to restrict the policy space countries have to design their own economic and social models."

Indeed, including the desire to not have chronic trade-deficits because they distort your economy in favor of finance, industry and real-estate, which tend to cause bubbles, and also because they cause over-indebtedness in your private sector. Therefore protecting your domestic industry against predatory foreign competition is perfectly logical.

Or for putting all the blame on exports from China (which make up a small fraction of U.S. GDP), while exempting U.S. domestic policies for responsibility for distorting all "finance, industry and real-estate which tend to cause bubbles," and also for "over-indebtedness in our private sector."

No one has restricted us from designing "our own economic and social models." So why should we complain? Of course, we're still big enough to threaten others in order to defend these models, but maybe not for too long....

Double standard is the standard, when such as U.S. pirates, does it for a good cause, when it's done against U.S. is piracy means crime. The ones who accuse China for colonizing Africa were the colonizers of continents ironically.

The job of government is to promote the long-term interest of consumers and workers, not to make life easy for firm. That is Competition Policy 101. Yet many Western commentators (whom I greatly respect) seem to conflate corporate interests with the interest of the people.

Perhaps it shows the strong hold that corporate interests have over Western political system. No wonder wealth distribution in the US and many Western countries have become increasingly concentrated in the hands of the 1%.

The global order ought to promote global growth that is inclusive both within countries and across countries. It is not growth per se that we value. I look forward to a world to come when all peoples, Western and non-Western, have broadly equal standards of living, and equal freedoms to live lives and pursue goals that they each have reason to value.

'The fact that many of China’s policies violate WTO rules is plain enough.'

No. It's not. If Chinese policies had violated the humiliating WTO rules which the US spent 12 years crafting, then the US would have and–with its overwhelming legal firepower and experience–could have brought suit against China either in the WTO courts themselves, or under TRIPS.

It didn't, because it was plain enough to our trade officials that China’s policies did not violate WTO rules.

People in rich countries often seem to assume that their countries are rich because of good policies and/or superior habits of their populace, and that they therefore deserve their wealth. Any country catching up to them must be cheating. They fail to understand that the real cause of their wealth is luck. They were fortunate enough to develop industrial clusters early, and those clusters build on themselves.

Let's stop trying to shut the door on those who are now entering. We won't succeed anyway, and the whole world will be more prosperous if it is less unequal.

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